US stocks volatile ahead of Fed meeting
September 14, 2015, 6:51 pm

Investors have for months been speculating that the Fed will raise interest rates this fall, but concerns over China’s stalling economy will likely play a significant factor [Xinhua]

At press time, the Dow Jones Industrial Average, S&P 500 and Nasdaq were all down at least 0.4 per cent.

There has been speculation in global markets for the past three months that some partial positive US economic data – consumer confidence, inflation, the labor market, US home sales, and confidence that a two per cent target inflation rate can be reached in the medium term as indicators of a healthy economy – would push the Fed to announce a rate hike for the first time since 2006.

Although the US economy added 215,000 jobs (just short of expectations) in July, an early September Department of Labor report showed that this figure further slipped to 173,000 jobs in August.

Analysts still held hope that the Fed would announce a rate hike by the year based on September Department of Labor statistics which showed the US unemployment at 5.1 per cent, its lowest level since 2008.

Their hopes were also boosted by the fact that real wages did not dip in August.

But while the Fed’s powerful, decision-making Open Market Committee (FOMC) has previously acknowledged a strengthening US economy, the status quo is such that there needs to be more positive economic data before the Fed will change its current highly accomodative monetary policy.

And then there is China.

With its benchmark stock exchanges falling to record lows in previous weeks – they have risen slightly, however, in roller coaster fashion – global traders now not only fear that China’s economy is still growing at its slowest pace in 25 years with little sign of an immediate turnaround even after months of monetary easing, but that it’s projected 7 per cent 2015 GDP growth could actually be revised down.

It’s a safe bet that the Fed will focus on China’s struggling economy and the falling prices of commodities will dominate their discussions, especially since it already warned in its June statement of the impact such a ‘shock to the system’ could have on global and US markets.

With the demand and price for global commodities down as China deregulates its Yuan currency, there is strong grounds for the FOMC later this week to indicate a cautionary stance supported by other indicators such as slow pay growth and lack of full-time jobs pushing many to work part time.

The FOMC would likely reiterate that it believes that its monetary policy will remain highly accommodative at least till the end of the year.

The BRICS Post with inputs from Agencies